India’s Central Bank Hikes Repo Rate by 25 Bps

The MPC unanimously voted to increase the policy repo rate by 25 basis points to 5.5%. The MPC also decided to change the stance to calibrated tightening. It underscored that given the current conditions, rate cuts are off the table in the near term. The duration and extent of the rate hike cycle, therefore, would be contingent on the actual growth, inflation developments and outlook, especially that of underlying inflation. The extent of broadening of price pressures and second round effects of the supply shock has also the impact of the demand impulses, considering all factors. CPI inflation for this year is projected to be 5.2%, with Q2 at 4.9. Q3 at six and Q4 at 5.7%. Inflation for Q1 next year is projected at 5.6%, with the risks being evenly balanced.